How Watson can help to make medical diagnoses?
Watson can make its diagnosis based on the patient's data and comparing it to the data from millions of other studies.
For example, having enough genetic data and the right algorithms, its AI computing capability demonstrated the huge potential of data analysis based on which it can be used for everything from diagnosing rare illnesses to prescribing perfect dosages of medicine based on the patient's personal genetic makeup. Of course, there are still plenty of challenges that need to be overcome before it can be used in mainstream medicine.
Recently Watson was able to diagnose a rare form of leukaemia after treatment was proved ineffective. It was fed in with the patient’s genetic data and compared to data from other 20 million oncological studies.
Sources:

Artificial Intelligence Used To Detect Rare Leukemia Type In Japan (2016)
Watson correctly diagnoses woman after doctors were stumped (2016)